Indian Financial System

PRESENTED BY: NIRAV JOSHI

Financial System
An institutional framework existing in a country to enable

financial transactions Three main parts Financial assets (loans, deposits, bonds, equities, etc.) Financial institutions (banks, mutual funds, insurance companies, etc.) Financial markets (money market, capital market, forex market, etc.) Regulation is another aspect of the financial system (RBI, SEBI, IRDA, Insurance Regulatory and Development Authority, the
administrative agency of Government of India for insurance sector supervision and development, FMC,

Forward Markets Commission, an Indian financial

regulatory commission

Financial assets/instruments
Enable channelising funds from surplus units to

deficit units There are instruments for savers such as deposits, equities, mutual fund units, etc. There are instruments for borrowers such as loans, overdrafts, etc. Like businesses, governments too raise funds through issuing of bonds, Treasury bills, etc. Instruments like PPF, KVP, etc. are available to savers who wish to lend money to the government

Financial Institutions
Includes institutions and mechanisms which

generation of savings by the community Mobilisation of savings Effective distribution of savings Institutions are banks, insurance companies, mutual funds- promote/mobilise savings Individual investors, industrial and trading companies- borrowers

Affect

Structure ofof Indian Financial Structure Indian Financial System: Markets

GOI Ministry of Finance

GOI Dept of Co. Affairs

SEBI

RBI

Registrar of Companies

Stock Exchanges

Clearing Corporations

Depositories

Mutual Funds

Banks

Companies

Broker Dealers

Merchant Bankers

Depository Participants

Registrar & Transfer Agents

Primary Dealers

Financial System Financial Institutions

Commercial Banks Insurance Companies Funds Mutual Funds Funds Provident/Pension Funds Deposits Non-banking Financial Companies Loans Shares Securities Funds Suppliers of Funds Individuals Businesses Governments Funds Demanders of Funds Individuals Businesses Securities Governments Funds

Private Placement

Funds Securities Financial Markets Money Market Capital Market

Securities

Types of Financial Markets Types of Financial Markets Types of Financial Types of Markets Types of Financial Markets

Financial Markets Types of Financial Markets

Capital Market
Equity Debt

Money Market
T-Bills Call Money Markets.

Forex Market
Spots Forwards

Derivatives Market
Agriculture Produces, Metals, Financial futures like Interest rate, currency, indices etc

Retail Corporate Banks FI FIIs

Banks Corporate FI, FIIs

Banks Corporate FI, FIIs

Banks, FIs Corporate

A Treasury Bill is a negotiable debt obligation issued by a government. Treasury bills are considered to be short-term, as the period of maturity is one year or less. They are exempt from local and state taxes. They are the safest form of marketable investment. For example, you could buy a 13-week T-bill priced at $9,700. At this point, the US government would owe you $10,000, due in three months. Thus, you are earning the difference between what you paid (the discounted value) and what the government pays you: $300. The result is the government pays a 3.09% interest rate ($300/$9,700 = 3.09%) over the tenure of three months. Call money market refers to the mechanism which allows both dealers and brokers to borrow funds to invest. The funds are used either to provide finance for purchasing securities which can be added to the investment firm's portfolio or as a resource for covering the margin accounts of the clients of the firm. The call money market offers a means of securing finance for credit needs. The chief option for securing finance is the call money loan. Generally short term loans, these loans are used for transactions between banks or with other dealers of money markets.

The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized over-the-counter financial market for the trading of currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. The primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert one currency to another currency. For example, it permits a US business to import British goods and pay Pound Sterling, even though the business's income is in US dollars.
In finance, a derivative is a financial instrument (or, more simply, an agreement between two parties) that has a value, based on the expected future price movements of the asset to which it is linkedcalled the underlying asset such as a share or a currency. There are many kinds of derivatives, with the most common being futures, and options.

Financial Markets
Money Market- for short-term funds (less than

a year) Organised (Banks) Unorganised (money lenders, chit funds,A Chit fund is a kind of savings scheme practiced in India. , etc.)
Primary

Capital Market- for long-term funds

Issues Market Stock Market Bond Market

Organised Money Market

Call money market Bill Market

bills Commercial bills Bank loans (short-term) Organized money market comprises RBI, banks (commercial and co-operative)

Treasury

Purpose of the money market

Banks borrow in the money market to: Fill the gaps or temporary mismatch of funds To meet the CRR and SLR mandatory requirements as stipulated by the central bank To meet sudden demand for funds arising out of large outflows (like advance tax payments) Call money market serves the role of equilibrating

the short-term liquidity position of the banks

Evolution of Financial Sector

Merchant banking services were introduced in 1960. General Insurance in the early 1970. Leasing in closing years of 1970.

Over the counter services eg shares/mutual

funds/factoring/ etc 1980.

Constituents of Financial Services

There are four constituents. 1.

Instruments-(Equity,Debt,Hybrid Instruments, a hybrid bill is a public bill which affects the private interests of a particular person or organization. It is generally initiated by the Government on behalf of non-Parliamentary bodies such as local authorities and is treated like a private bill for the beginning of its passage through Parliament. This gives individuals and bodies an opportunity to oppose the bill or to seek its amendment before a Select Committee in either or in both Houses. The bill is then treated as a public bill. Market Players-(Banks, Financing Institutions, Mutual Funds, Underwriters, refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products ,Market Makers, A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. etc)

2.

3. Specialized Institutions-(Acceptance houses, Discount Houses,Depositories,Credit rating agencies) The list of specialized financial institutions in India mainly includes, Export-Import Bank Of India, Board for Industrial & Financial Reconstruction, Small Industries Development Bank of India, National Housing Bank. They are government undertakings established with a view to offer financial as well as technical assistance to the Indian industries. 4. Regulatory Bodies-(These include department of banking and insurance of the central government,RBI,SEBI,etc.

Financial Intermediaries
Mutual Funds- Promote savings and mobilise funds

which are invested in the stock market and bond market Indirect source of finance to companies Pool funds of savers and invest in the stock market/bond market Their instruments at savers end are called units Offer many types of schemes: growth fund, income fund, balanced fund Regulated by SEBI

Financial Intermediaries
Merchant banking- manage and underwrite new

issues, advise corporate clients on fund raising. Subject to regulation by SEBI and RBI. SEBI regulates them on issue activity and portfolio management of their business. RBI supervises those merchant banks which are subsidiaries or affiliates of commercial banks Have to adopt stipulated capital adequacy norms and abide by a code of conduct

Merchant Bank
A financial institution engaged primarily in accepting foreign bills, advising companies on flotation and takeovers, underwriting new issues, hire-purchase finance, making long-term loans to companies, and managing investment portfolios, funds, and trusts .

Conclusion
There are other financial intermediaries such as NBFCs

National Bulk Handling Corporation is India's leading integrated commodity and collateral management company based in Mumbai. NBHC is a venture of the Financial Technologies group. Only Indian Warehousing and Commodity Management solution entity with a ISO 22000:2005 certification. It handles more than 2.7 million tone of agricultural commodities mainly rice, wheat, mustard and maize at around 3000-odd centres located in 19 states, Venture Capital Funds, Hire and Leasing Companies, etc. Indias financial system is quite huge and caters to every kind of demand for funds Banks are at the core of our financial system and therefore, there is greater expectation from them in terms of reaching out to the vast population as well as being competitive.